Debt Karma

Debt Karma

Article excerpt

THE SOURCE: "Political Institutions and Foreign Debt in the Developing World" by Thomas Oatley, in International Studies Quarterly, March 2010,

POOR COUNTRIES AND ENORMOUS foreign debt go hand in hand--that is, except for the one-third of all developing countries that regularly borrow from abroad and haven't wound up with a serious debt problem. What enables these all-stars to escape owing huge sums to foreign creditors? Democracy, theorizes Thomas Oatley, a professor of international political economy at the University of North Carolina, Chapel Hill.

The 40 most heavily indebted developing countries entered the 1990s owing an average of 220 percent of their gross domestic product (GDP). Research into why some countries ended up so far underwater has suggested that the key factor was simply bad luck: oil price shocks, recessions in industrial countries, weak commodity prices, high interest rates. But in his study of 78 developing countries from 1976 to 1998, Oatley sees little evidence that such factors have significant long-term effects. Political institutions, he finds, provide a much better explanation. Over a 20-year period, an average autocracy would rack up twice as much debt as a percentage of GDP as an average democracy. …